Tags
1099-DIV, 1099-INT, Beneficiaries, estate, Final Return, Financial Institutions, Income Earned after Death, IRS, Nominee Distribution, Schedule B
To report 1099 income properly on the final return, the executor must determine how the financial institution reported the income on the 1099. The executor must know if the income on the 1099 is for the entire year or only before the date of death. Typically, financial institutions will send a 1099 showing the income earned for an entire year even if the executor informed the financial institution of the death. This doesn’t make the 1099 invalid, it just makes more work for the executor.
How to Report 1099 Income on the Final Return
As discussed in the article Track the Estate Income, the executor will have to determine how much earned income occurred after death. The types of 1099 income that can keep earning after death are typically interest and dividends. Therefore, for tax reporting purposes, a 1099-INT provides interest income earned for the year while the 1099-DIV provides dividend income earned for the year. Furthermore, both forms of income are reported on the 1040 Schedule B. So, to break out the income properly for the final return, the IRS provides the following instructions:
1. Report the entire amount of interest on the 1099-INT.
2. Include the interest income from other 1099’s or other sources, if any.
3. Create a subtotal of all interest income.
4. Report any interest income earned after death and write next to the amount “Nominee Distribution”. Subtract the amount from the subtotal.
5. Report the resulting total on line 2 form 1040 on the final return.
Repeat the same procedure for dividend income reported on the 1099-DIV.
The Nominee Distribution
The amount titled Nominee Distribution is income reported by the estate or beneficiaries. Therefore, excluding the Nominee Distribution amount from the final return is necessary.
Was this article helpful? If you were executor, would you be able to handle 1099 income following this article? Share your comments of questions in the comment box below.
Reference:
IRS Publication 559 Survivors, Executors, and Administrators
I promptly reported the death to the pension administrator and they stopped future payments and indicated that I should keep the last payment which was made at the end of the month.
Money accrued before death but paid afterwards is considered income in respect of decedent which should be taxed either on the estate 1041 or on the beneficiaries form 1040.
Barry,
I had to deal with IRD in a previous estate and it had to be reported on a 1041 as it involved a probated estate with income over $600.00. However, I have no clue how to report pension income as IRD income on a 1040.
I have a similar situation concerning capital gains distributions from a mutual fund. All the gains were reported to the decedent after death. This is how I plan to handle the problem:
1) I will enter zero on the line for capital gains distributions for the 1099-div on the decedent’s return.
2) I will then enter a statement making sure that the IRS understands that all the capital gains were paid out after death and that a beneficiary will report all the gains on their return listing the beneficiary and the social security number.
I expect you could do the same thing with pension income as IRD. Instead of reporting everything on the 1099-R only report the income received before death. Attach a statement explaining the after death income and report that amount on the return for the person or estate responsible for taxes on that income.
Of course, the instructions from the IRS on how to treat nominee capital gains from mutual funds is how I am handling my situation. The instructions clearly state to report only the income up until the day of death. Attach a statement explaining the nominee income. So, that’s what I am doing.
So, I hope this helps and points you in the right direction. If all else fails, I would try that method or consult a tax professional and hear what they have to say.
I do find it strange that a pension allows you to keep the money paid out after death. My Mother’s pension clawed back the money through direct deposit to her account and is much easier to handle tax-wise. It’s unfortunate you ended up with this complication.
I wish you luck,
Robert
This is good info for 1099 INT. However, I have case where I have income on two 1099-R’s from pension plans. The final pension payments were made after death so the 1099-R’s came in the wrong name. Standard nominee process should work for assigning the income to estate by issuing a corrected 1099-R.
However, how do I enter the 1099-R income on the final return?
Do I enter the full original amount or do I deduct the nominee amount? That might trigger something with IRS.
If I enter the full amount like the 1099-INT example on Schedule B, Where do I back out the nominee income? There’s no space on the pension income line to add a subtotal and back out the nominee distribution.
Hi Barry,
Thank you for your question. In my experience, once the decedent passes away, the second call an administrator makes is to contact the pension manager to stop the pension income unless there is a surviving spouse. If there is a surviving spouse, the conversation should be about transferring the pension to the spouse. Recently, I had to make such a call to my Mother’s pension administrator to stop the payments. They stopped the payments and clawed back the income paid out after death from the account where direct payments were made. As a result of quick action, the 1099-R’s are correct for her final return. What you need to do is contact the pension administrator and let them know when the decedent died and that you received income after death. They may claw back the money and send a corrected 1099-R. Basically, I don’t know of a method where the IRS considers pension income nominee income. So, I can’t directly answer your question. There well could be a way to handle pension income as a nominee, but I am not sure what that process includes.
So, I would call the pension administrator and discuss the issue. There may be a reason why there is no space on the pension income line to back out nominee distributions.
I hope this helps.
Good luck,
Robert